2004 in hindsight

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Pundits have a tendency to weigh in with their predictions for
the coming year every December, and 2003 was no exception.

Many saw outsourcing gathering pace in 2004. Some saw companies
becoming more selective in what they outsourced. A few said that
bankruptcies, as well as mergers and acquisitions, would thin out
the vendors. Weve found that all of them were correct in
their predictions, or at least couldnt point to anyone who
was glaringly wrong.

For example, analysts believed outsourcing would grow as
business demands put a tighter financial squeeze on CIOs. In 2004,
there would be more top-down decisions to send away jobs to cheaper
destinations. And they were right.

Outsourcing accelerates "Over 100 new IT and business process
outsourcing deals were signed in 2004 in Asia Pacific,"says Michele
Caminos, an analyst at Gartner, which had earlier predicted that
outsourcing would accelerate this year.

Faced with rising operation costs, the Singapore government took
the lead in Asia with ambitious plans to speed up the outsourcing
of major services, including security, project management, finance
and IT.

The national initiative followed DBS Banks plunge into
outsourcing in late 2002 in an effort to save US$29.3 million in
the first three years of its deal with IBM. In late October,
Singapore Airlines also announced it contracted out its data
centre, computing support and information technology help desk to
IBM for US$181 million. The carrier expected to shave US$8.9
million off its budget in the first year by sending away 130 IT
jobs.

To date, thousands of low-level IT and finance jobs in
government-linked companies, including DBS Bank, Singapore Airlines
and Singapore Airport Terminal Services, have been displaced. The
island states private sector is expected to follow suit. Some
63 percent of companies are considering farming out internal
functions over the next five years, according to Gartner.

Malaysian companies, led by several large banks, were also hot
on the outsourcing trail in search of the low-cost IT nirvana. The
countrys largest outsourcing deal was signed in 2002 between
Bumiputra Commerce Bank and EDS. Maybank and Malaysian Airlines
have followed suit. Even the Malaysian government has explored
contracting out IT infrastructure.

The one big scare
However, in a major wake-up call for the industry, J.P. Morgan
Chase & Co, the second largest bank in the US, in September
terminated a seven-year, US$5 billion outsourcing contract with IBM
signed in 2002.

What could have possibly gone wrong in a pioneering agreement
that was hailed for adding flexibility to the banks IT
infrastructure? Apparently, IT was too important to be left to an
outsider.

"We believe managing our own technology infrastructure is best
for the long-term growth and success of our company," and will give
the bank competitive advantages, accelerate innovation and enable
efficiency, CIO Austin Adams said in a statement. Adams came from
Bank One, which J.P. Morgan Chase & Co acquired in July.

Governance becomes urgent After the Sarbanes-Oxley Act was
passed in the US in late 2002, observers expected a surge in demand
for compliance software. But the much-awaited deals only started to
stream in this year, according to Gartner.

"Many companies have committed resources, but at varying degrees
in different countries based on local compliance requirements, to
address this issue in 2004," says Phil Sargeant, a research
director at Gartner in Asia Pacific.

"Over time, more companies will be addressing key [compliance]
issues, many of which will require investment in IT to ensure that
Asia does not have an Enron-type experience,"adds Sargeant.

Gartner earlier this year cautioned companies to pay attention
to global accounting regulations, including the Sarbanes-Oxley Act,
if they were serious about doing business in a global market.

The warning was prophetic: In September, Japans banking
regulator, the Financial Services Agency, forced Citigroup to close
its private banking operations in the country after finding that
the office did little to police money laundering and had misled
customers about investment risk. Citigroup also shut down its
investment management services unit in Japan after the banking
giant found ";internal control, compliance and governance issues in
that subsidiary."

Massive fraud
Meanwhile, liquidation was looming large at Far East Pharmaceutical
Technology after the Hong Kong-based drugmaker defaulted on a US$80
million loan arrangement. Chairman Cai Chong Zhen, who resigned in
September, disappeared.

Just as stricter audits of corporate financial accounts had put
greater pressure on IT systems to provide accurate and timely
information to stakeholders, increased scrutiny of IT expenses put
an end to rogue projects.